It’s a fact of life that nothing works well all the time. That’s where multi-asset strategies have a valuable role to play in investors’ portfolios. Yet deciding when, for whom and how multi-asset strategies should be implemented is a complex calculus. Here we detail the four main types of multi-asset strategies and their benefits compared to traditional static allocation approaches, as well crucial considerations for those implementing multi-asset strategies.

The strength of multi-asset strategies lies in adopting varying approaches to asset allocation, with contrasting views and contrasting bets on the future. To implement multi-asset strategies, however, investors should understand not only the reasons they can be beneficial, especially in the current market environment, but also the different styles of multi-asset strategies that exist and how to successfully implement them.

The case for multi-asset strategies

Asset allocation is typically the most significant driver of a portfolio’s return, but is typically determined by a single individual or committee and a single framework. By contrast, large teams are deployed to focus on manager selection and security selection—despite the fact that this generates less value, net of fees.

This disparity in resources and concentration of decision-making power arguably represents a vulnerability to most investors’ portfolios. Many multi-asset strategies, on the other hand, seamlessly blend a wide variety of approaches and parameters into a single strategy.

Types of multi-asset strategies

A highly diverse population of multi-asset strategies has emerged, but the strategies can be grouped into four basic categories.

Idiosyncratic: More focused on absolute returns, idiosyncratic strategies provide access to a broader range of return drivers and are more dynamic in their asset allocation, resulting in greater downside mitigation than core strategies.

Risk parity: These encompass a broad range of approaches to building a risk-balanced portfolio, often by leveraging lower-volatility assets.